Golden handcuffs: What Cushman’s hires of Harmon and Spies could mean for the brokerage

UPDATED, 10:43 a.m., Oct. 19: Doug Harmon and Adam Spies had a good thing going at Eastdil Secured. The duo brokered some of the city’s largest deals, and enjoyed the status of being top of the New York investment sales heap.

So why make a move to Cushman & Wakefield, which despite its pedigree and size, remains a laggard in investment sales? Market observers speculated compensation would have been the big draw, with private equity-backed Cushman willing to reward top performers. But interviews with sources both within and outside Cushman reveal an even bigger sweetener, one that allows them to be potentially involved in every big investment sales deal the firm does in New York.

Sources familiar with internal discussions at Cushman said brokers are being advised to bring in Harmon and Spies on all New York investment sales deals $75 million and up, in exchange for a referral fee. The practice mirrors one used in the territory system devised by Massey Knakal Realty Services, whereby a broker sourcing a deal in another’s territory would hand it over to the territory broker in exchange for a referral fee. But applying the same system to deals of a certain size across the board appears to be a first. It would certainly affect some of Cushman’s current top brokers, such as Bob Knakal, James Nelson and Stephen Palmese, all products of Massey Knakal.

Knakal didn’t comment directly on the $75 million threshold, but said he sees Harmon and Spies coming on board as a good thing.

“No matter how good you are or think you are, you can get better by working with some of the best in the industry,” Knakal said. “I equate it to: If I could play hockey with Wayne Gretzky and Mark Messier, I would jump at it.”

From mass to class

Harmon and Spies specialize in brokering the sale of trophy New York City buildings, an area in which Cushman has barely made a dent since its leading capital markets team of Richard Baxter, Jon Caplan, Yoron Cohen and Scott Latham left for JLL in 2010. Cushman is also still reeling from a mass exodus in its New England investment sales division last September, when Rob Griffin, Boston’s top investment sales broker, left for Newmark Grubb Knight Frank and took 70 other people with him.

The comment came just after DTZ acquired Cushman in a $2 billion deal. The acquisition sparked talk that the combined firm was headed for an initial public offering, but analysts believe that for that to happen, the firm must boost revenues and improve its margins.

“Cushman is looking to bulk up and generate momentum across multiple channels, including capital markets, where they are trailing their peers,” said Mitch Germain, an analyst with Manhattan-based investment bank JMP Securities. “Eastdil owns the New York market.”

Eastdil, a New York-based subsidiary of Wells Fargo, has certainly been dominant, with a record $22.7 billion worth of deals in 2015, according to TRD’s analysis. In comparison, Cushman did $3.4 billion in deals that year, after absorbing Massey Knakal Realty Services. Just the year before, Cushman did only $875 million and Massey Knakal did $3.8 billion, according to TRD’s analysis.

The question the industry is now asking is how long it’ll take for Harmon and Spies to hit similar numbers at Cushman.

“Building a pipeline takes a while,” said Brandon Dobell, a partner at the global investment bank William Blair & Co. and a veteran real estate industry analyst. “You’re lucky if the guy is doing business in six months, let alone 24 to 36 months.”

“I’d be remiss to say Cushman will be No. 1 in the New York investment sales rankings,” Dobell added. “To see the move really change Cushman could take years, and by then, the company could have attracted even more high-profile talent.”

A spokesperson for Cushman declined to comment on how $75 million-and-up deals would be handled. But sources said the condition could discourage star brokers from joining, and even spur some current brokers to leave the firm once their contracts expire.

Nat Rockett, who ran Cushman’s New York investment team until September 2015 with Helen Hwang until both left for other brokerages, noted that more than client relationships, it’s the market that determines a broker’s deal volume when they move to a new shop.

“It’s much more appealing to move when the market sucks because you’re leaving behind less,” Rockett of Marcus & Millichap said. “But when will supply come back and make it possible for you to make an impact?”

Germain believes the new star power will count for something. “This will really put them on the radar screen when a large trophy asset is coming up for sale, creating opportunities that didn’t exist before,” he said.

In addition to Cushman’s commission-based structure versus Eastdil’s salary-and-bonus structure, the former also offers more types of services. Harmon, in a statement, said he plans to take advantage of the firm’s “leasing, property management, development services and valuation and appraisal services.”

“They can leverage what Cushman does on the management and leasing side,” Germain said. “I’m not sure how much Eastdil is able to leverage the Wells platform.”

Cushman has been a strong player in the mid-market investment sales space, with 242 transactions in 2015 compared to Eastdil’s 56 and CBRE’s 44.

The hope now, insiders say, is to use Harmon and Spies to replicate that success on big-ticket deals.

“We always sold the most buildings and Eastdil always did the most dollar volume,” a high-level source close to Cushman said. “Now, Cushman will be a tough platform to beat.”